Bennett: The Year Ahead Comment

By admin

International airlines are likely to face difficult operating conditions in 2012, both globally and specifically in relation to the Australian market. Weakening overseas demand for passenger air travel and deteriorating freight market conditions will have an adverse global impact on international airlines’ financial performance. This will be exacerbated by likely increases in international fuel costs. In Australia there will be pressure from airport operators – notably Sydney, Melbourne and Brisbane – for significant increases in aeronautical charges in response to planned capital expenditure programs. Fuel prices in Australia will also rise in line with international trends.
The International Air Transport Association, for some months, has been reporting weaker global air traffic results. This international situation will likely worsen over 2012 with predictions of a further weakening of economic performance in Europe and slower growth in previously strongly performing economies like China and India.
The outlook for the Australian aviation market is probably less gloomy than that for the global market. The continuing strong Australian dollar has shielded international airlines operating to and from Australia from the worst of the weakness in passenger traffic seen overseas. The outbound market from Australia should remain reasonably strong due to the relatively robust performance of the Australian economy, but it is unlikely that growth in passenger numbers outbound from Australia will match the performance of the past couple of years.
However, international airlines operating to and from Australia are likely to experience quite significant cost pressures in the coming year. Aeronautical and aeronautical related charges will increase in response to major capital programs by service providers. Increased charges are already in place at Perth Airport due to major airfield and terminal developments over the next 7 years. The operators of Melbourne and Brisbane airports have given notice of major capital programs over the next 10 years, including the construction of a new parallel runway at Brisbane Airport. The operator of Sydney Airport has foreshadowed considerable capital expenditure related to airport security measures. Furthermore, Airservices Australia expects to spend about $900m on capital works over the next 5 years. The flow through to airlines in terms of increased charges has already been accepted by the Australian Competition and Consumer Commission.
However, BARA retains the view that, arguably, the greatest threat to efficient airline operations on the east coast of Australia is the structure of ownership of and the lack of timely investment in jet fuel infrastructure. Jet fuel supply reliability has been an issue in Australia for many years and fuel supply disruptions have been a regular occurrence at Australia’s east coast airports in particular. A number of factors, including constrained refinery capacity, ageing assets and poor supply planning have combined to cause ongoing supply disruptions. The lack of open access to jet fuel supply infrastructure exacerbates the problem.
It is acknowledged that Caltex has announced its intention to increase the capacity of its pipeline from Kurnell to Sydney Airport and it appears that the operator of the Somerton pipeline to Melbourne Airport will be expanding the capacity of that facility. Further, the Shell plans to close the Clyde refinery in Sydney and convert it to an import storage facility are likely to increase the capacity utilisation of its pipeline to Sydney Airport. Nevertheless, increased infrastructure capacity is not necessarily a precursor to more competitive outcomes for the supply of fuel to airlines. 
The cost pressures on airlines operating to and from Australia are likely to intensify over the next 5 years and beyond. As a result airlines face the prospect of weak financial returns, even in the reasonably buoyant Australian market.

Email the Travel Weekly team at

Latest News